Review the efficient uses of the interfaces to service portfolio, as well as managing demand for service.

Demand Management and Service Lifecycle

Demand management is a critical aspect of service management. Poorly managed demand is a source of risk for service providers while excess capacity generates cost without creating value that provides a basis for cost recovery.

Service production cannot happen without the simultaneous presence of demand that consumes the output. It is a pull system in which consumption cycle stimulates production cycle. Demand pulls capacity. Demand cannot exist simply because capacity exists.

Consider the following points for Demand management through lifecycle:

Forecast demand and communicate to design and Support SPM

Confirm service assets are designed to meet capacity and availability requirements

Testing and validating services for forecast utilization and PBA

Technical, application, and operations management functions will monitor services to ensure demand is within normal levels

Identify trends in PBA and to initiate changes in capabilities of provider/customers.

In the next section, let us understand the purpose and objective of Demand Management.

Purpose and Objectives of Demand Management

The purpose of demand management is to understand, anticipate and influence customer demand for services and to work with capacity management to ensure the service provider can meet this demand.

Demand management works at every stage of the lifecycle to ensure that services are designed, tested and delivered to support the achievement of business outcomes at the appropriate levels of activity.

This is where the service provider has the opportunity to understand the customer needs and feed these into the service strategies to realize the service potential of the customer and to differentiate the services to the customers.

The objectives of demand management are to:

Identify and analyze patterns of business activity to understand the levels of demand that will be placed on a service

Define and analyze user profiles to understand the typical profiles of demand for services from different types of user

Ensure that services are designed to meet the patterns of business activity and the ability to meet business outcomes

Work with capacity management to ensure that adequate resources are available at the appropriate levels of capacity to meet the demand for services, thus maintaining a balance between the cost of service and the value that it achieves

Anticipate and prevent or manage situations where demand for a service exceeds the capacity to deliver it

Gear the utilization of resources that deliver services to meet the fluctuating levels of demand for those services

Let us learn what the scope of the demand management process is.

Scope of Demand Management

The scope of the demand management process is to identify and analyze the patterns of business activity that initiate the demand for services and to identify and analyze how different types of user influence the demand for services.

Demand management activities should include:

Identifying and analyzing patterns of business activity associated with services

Identifying user profiles and analyzing their service usage patterns

Identifying, agreeing and implementing measures to influence demand together with capacity management.

This is sometimes called the ‘management of demand.’ This could be in situations where service demand exceeds capacity, and where capacity increases are not feasible (e.g., differential charging, incentives, penalties). It could also be in situations where a new service has been launched, and IT wishes to encourage users to use it more.

Also, it could be used to reduce demand in peak utilization times and shift it to less active times – thus more efficiently balancing overall utilization levels. Demand management is active in every stage of the service lifecycle and works closely with several other processes.

One of the closest of these is capacity management. It is important to note the difference in scope between these two processes. At first, glance the scopes of capacity and demand management seem to overlap, and demand management might be just one aspect of capacity management.

However, this is an oversimplification of both processes. Both are concerned with achieving the same business outcomes, and both are concerned with optimizing investment, but the processes themselves are different. To generalize, demand management focuses primarily on the business and user aspects of providing services, whereas capacity management focuses primarily on the resourcing and technology aspects.

In the next section, we will know what the main value of demand management is.

Value to the Business

The main value of demand management is to achieve a balance between the cost of service and the value of the business outcomes it supports. The other service strategy processes define the linkage between business outcomes, services, resources, and capabilities.

Demand management refines the understanding of how, when and to what level these elements interact. This enables executives to evaluate the real investment required to achieve business outcomes at varying levels of activity.

Let us learn about the Patterns of business activity or PBA.

Challenges in Managing Service Demand

Before moving ahead to learn about the activities, let us understand the challenges in managing service demand. They are:

Source of Risk due to poorly managed demand because of the uncertainty of demand

Excess capacity generates cost without creating value

Customers are reluctant to pay for idle capacity unless it has value for them

A certain amount of unused capacity is necessary to deliver service levels

Insufficient capacity impacts quality of services delivered and limits the growth of the service

Activities

Patterns of business activity (PBA) are identified, codified, and shared across the process for clarity and completeness of detail. One or more attributes such as frequency, volume, location, and duration describe the business activity.

They are associated with requirements such as security, privacy, and latency or tolerance for delays User profiles (UP) are based on roles and responsibilities within organizations for people, and functions and operations for processes and applications. As suggested earlier, business processes and applications are treated as users in many business contexts.

Let us understand Demand Management and Capacity Management. We will also look into the tight coupling between Demand, Capacity, and Supply described in a figure.

Demand and Capacity Management

From a strategic perspective, demand management is about matching supply to demand. Consumption produces demand and production consumes demand in a highly synchronized pattern as mentioned in the figure.

Unlike goods, services cannot be manufactured in advance and stocked in a finished goods inventory in anticipation of demand. Demand and capacity are far more tightly coupled in service systems even when compared with just-in-time (JIT) manufacturing.

In the figure, customer assets present a pattern of demand to the service provider.

Each time a user consumes a service demand is presented to the service provider, and this consumes the capacity of the service assets. This, in turn, results in the service being supplied to meet the consumer’s demand.

The greater the consumption of the service, the higher the demand, the higher the consumption of the capacity and the more of the service is supplied. This cycle of demand and supply will only function effectively while the service assets have available capacity.

As soon as the capacity is no longer available, the service provider will not be able to supply enough of the services to satisfy customer demand. For this reason, a major part of demand management is to understand the potential demand and the impact of the demand on the service assets.

This allows capacity management to manage service assets (and investments) towards optimal performance and cost. The productive capacity of resources available to a service is adjusted according to demand forecasts and patterns.

Some types of capacity can be quickly increased as required and released when not in use. The arrival of demand can be influenced using pricing incentives. However, it is not possible to produce, and stock service output before demand actually materializes.

Let us look at a couple of sections describe activity based Demand Management.

Activity-based Demand Management

Business processes are the primary source of demand for services. Patterns of business activity (PBA) influence the demand patterns seen by the service providers. It is very important to study the customer’s business to identify, analyze and classify such patterns to provide sufficient basis for capacity management.

Visualize the customer’s business activity and plans regarding the demand for supporting services. For example, the fulfillment of a purchase order (business activity) may result in a set of requests (demand) generated by the order-to-cash process (the business process of the customer).

Analysing and tracking the activity patterns of the business process makes it possible to predict demand patterns for services in the catalog that support the process.

It is also possible to predict demand for underlying service assets that support those services. Every additional unit of demand generated by business activity is allocated to a unit of service capacity. Demand patterns occur at multiple levels. Activity-based demand management can daisy-chain demand patterns to ensure that the business plans of customers are synchronized with the service management plans of the service provider.

Let us move on to the next example.

Example of Activity-based Demand Management

For example, in the figure of activity-based demand management, if a business plan calls for the allocation of human resources, the addition of an employee can be translated into additional demand for the service desk function regarding service requests and service incidents.

Similarly, new instances of business processes can be used as predictors of demand for the service demand regarding incidents and requests. After validating the activity/ demand model, it is possible to make adjustments to account for variations such as new employees, changes to business processes and technology upgrades on the customer’s side.

Some of the benefits of analyzing PBA are in the form of inputs to service management functions and processes such as the following:

Service design can optimize designs to suit demand patterns.

Capacity management translates the PBA into workload profiles so that the appropriate resources can be made available to support the levels of service utilization.

Service catalogue can map demand patterns to appropriate services.

Service portfolio management can approve investments in additional capacity, new services or changes to services.

Service operation can adjust the allocation of resources and scheduling.

Let us understand the Codifying patterns of business activity, described in a chart.

Codifying of PBAs

Codifying patterns helps multidimensional Analysis. Uses criteria such as likeness and nearness. Develops a simple and standard catalog of patterns. Reduces the number of patterns, make analysis easier, and avoid complicated solutions.

Let us look into an example, which describes how user profiles matched with business activity.

User Profile

User profiles (UPs) are based on roles and responsibilities within organizations. As suggested earlier, business processes and applications are treated as users in many business contexts. Many processes are not actively executed or controlled by staff or personnel.

Process automation allows for processes to consume services on their own. Processes and applications can have user profiles. Each UP can be associated with one or more PBA, as shown in the table. This allows aggregations and relations between diverse PBAs connected by the interactions between their respective UPs.

User profiles are constructed using one or more predefined PBA. They are also under change control. UPs represent patterns that are persistent and correlated.

Let us now understand the Pattern matching using PBA and User Profile (UP) in the next section.

PBA and User Profile

PBA and User Profile Pattern matching using PBA and UP ensure a systematic approach to understanding and managing demand from customers. Customers better understand their own business activities and view them as consumers of services and producers of demand.

Service providers have the information necessary to sort and serve the demand with appropriately matched services, service levels, and service assets. This leads to improved value for both customers and service providers by eliminating waste and poor performance.

In the next section, we will discuss the differentiated offerings.

Differentiated Offerings

The packing of core and supporting services is an essential aspect of market strategy. Service providers should conduct a thorough analysis of the prevailing conditions in their business environment, the needs of the customer segments or types they serve, and the alternatives that are available to those customers.

The decisions are strategic because they hold a long-term view of maintaining value for customers even as industry practices, norms, technologies, and regulations change.

Therefore, when analyzing the PBA, it may become apparent that different levels of performance are required at different times or different combinations of utility. In these cases, it is important to work with service portfolio management to define service packages that meet the variations in PBA.

For example, a company that produces seasonal goods may vary its sales process during periods of peak demand. During quieter times, sales staff may complete the entire order process (log the sale, check for inventory, initiate shipping and bill the customer), thus using all the utility of the service each time an order is placed.

During periods of peak activity, the salespeople may only log the sale and check for inventory, passing the order to temporary staff for shipping and billing, and then moving to the next order. In this case, there might be two differentiated offerings to reflect the two PBA.

In the next section, we look at the triggers, inputs, and outputs of the demand management.

Triggers, Inputs, and Outputs

The Triggers, Inputs, and Outputs related to Demand Management are discussed below:

Triggers

Triggers of demand management include:

A request from a customer for a new service, or change to an existing service. This will be initiated through business relationship management and service portfolio management.

A new service is being created to meet a strategic initiative – this will be initiated through service portfolio management.

A service model needs to be defined, and patterns of business activity and/or user profiles must be defined.

Utilization rates are causing potential performance issues or a potential breach of an SLA.

An exception has occurred to forecast patterns of business activity.

Inputs

Inputs to demand management include:

Initiative to create a new service, or to change an existing service. These inputs can come from service portfolio management or from change management.

Service models need to be validated, and patterns of business activity associated with each service model will need to be defined.

The customer portfolio, service portfolio, and customer agreement portfolio, all of which will contain information about demand and supply for services.

Charging models will be assessed to ensure that under- or over-recovery does not occur in internal service providers, or that pricing will be profitable for external service providers.

Chargeable items will need to be validated to ensure that customers actually perceive them and use them as defined.

Service improvement opportunities and plans will need to be assessed regarding their impact on demand.

Outputs

Outputs of demand management include:

User profiles

Patterns of business activity will be formally documented and included in the service and customer portfolios

Policies for management of demand when resources are over-utilized

Policies for how to deal with situations where service utilization is higher or lower than anticipated by the customer

Documentation of options for differentiated the offerings that can be used to create service packages.

Let us move on to the next section and learn about the Interfaces.

Interfaces

Major interfaces with demand management include:

Strategy management for IT serviceswill identify the key business outcomes and business activities that will be used to establish patterns of business activity and user profiles.

Service portfolio managementuses information from demand management to create and evaluate service models, to establish and forecast utilization requirements and to identify the different types of user of the service. Also, SPM will be able to develop service packages based on the information about patterns of business activity and user profiles.

Financial management for IT serviceswill help to forecast the cost of providing the demand based on forecast patterns of business activity. Also, it will work with demand management to identify measures to regulate demand when there is over-utilization of the service (e.g., through differential charging). Financial management for IT services will also identify the relative costs of each differentiated offering.

Business relationship managementis the primary source of information about the business activities of the customer. Business relationship management will also be useful in validating the user profiles and differentiated service offerings before they are confirmed in the customer and service portfolios.

Service level managementwill help to formalize agreements in which the customer commits to levels of utilization, and the service provider commits to levels of performance. Actual levels of performance and utilization will be reviewed at the regular service level review meetings (using information from demand management and capacity management), and any deviations noted. Demand management will work with service level management to define policies for how to deal with variances in supply and demand.

Capacity managementwill work closely with demand management to define exactly how to match supply and demand in the design and operation of the service. Capacity management will monitor the actual utilization of service and work with demand management to understand trends of utilization and how to adjust the services for future use.

Availability managementuses information about patterns of business activity to determine when service availability is most important. This information is also helpful for performing service outage analysis and project service availability reporting.

IT service continuity managementwill use demand management information to perform business impact analysis. It will be able to determine which workloads are impacted, and what volume of work is impacted by major outages at different times. Demand management information is also helpful in sizing recovery options to be able to deal with the minimum levels of business activity to ensure business continuity.

Change managementwill work with demand management and capacity management to assess the impact of changes on how the business uses services. This is helpful in confirming the impact of the change and also in evaluating the true cost of changing the service (a ‘simple’ change may push demand over a threshold where significant additional investment is required).

Service asset and configuration managementwill identify the relationship between the demand placed on services and the demand placed on systems and devices. This is an essential link in ensuring that operational teams are able to execute what was anticipated during strategy and design.

Service validation and testingwill ensure that the service has correctly dealt with patterns of demand and that measures taken to prevent over-utilization are effective.

Event management, if instrumented correctly, can provide information about actual patterns of service utilization and validate the predictable patterns of business activity for a service. Any deviation can be assessed and adjustments made to the service through service portfolio management.

Let us take an overview of the main sources of the documentation and information required for effective demand management.

Information Management

The documentation and information required for effective demand management have been described earlier, but an overview of the main sources is as follows:

The service portfolio

The customer portfolio to obtain information about customers and the opportunities that they represent

The project portfolio to ensure that all projects have included demand management as a component

Minutes of meetings between business relationship managers and customers

Service level agreements are used to set a baseline for previous demand levels and to define limits and policies for future utilization

The configuration management system to map service assets, customer assets, and business outcomes.

Next two sections provide examples of critical success factors (CSFs).Let us look into the next section.

Critical Success Factors and Key Performance Indicators

These are the conditions that need to be in place or things that need to happen if the demand management process is to be considered successful. Each CSF will include examples of key performance indicators (KPIs).

These are metrics that are used to evaluate factors that are crucial to the success of the process. KPIs, as differentiated from general metrics, should be related to CSFs. The following list includes some sample CSFs for demand management.

Each organization should identify appropriate CSFs based on its objectives for the process. Each sample CSF is followed by a small number of typical KPIs that support the CSF. These KPIs should not be adopted without careful consideration.

Each organization should develop KPIs that are appropriate for its level of maturity, its CSFs and its particular circumstances. Achievement against KPIs should be monitored and used to identify opportunities for improvement, which should be logged in the CSI register for evaluation and possible implementation.

The following table lists the CSF and their corresponding KPIs:

CSF

KPI

The service provider has identified and analyzed the patterns of business activity and is able to use these to understand the levels of demand that will be placed on service.

Patterns of business activity are defined for each relevant service.

Patterns of business activity have been translated into workload information by capacity management.

The service provider has defined and analyzed user profiles and is able to use these to understand the typical profiles of demand for services from different types of user.

KPI Documented user profiles exist, and each contains a demand profile for the services used by that type of user.

KPI Patterns of business activity are defined for each relevant service. KPI Patterns of business activity have been translated into workload information by capacity management.

The service provider has defined and analyzed user profiles and is able to use these to understand the typical profiles of demand for services from different types of user.

Documented user profiles exist, and each contains a demand profile for the services used by that type of user.

A process exists whereby services are designed to meet the patterns of business activity and meet business outcomes

KPI Demand management activities are routinely included as part of defining the service portfolio.

There is a means to manage situations where demand for a service exceeds the capacity to deliver it.

Techniques to manage demand have been documented in capacity plans and, where appropriate, in service level agreements.

Differential charging (as an example of one such technique) has resulted in a more even demand for the service over time.

Demand Management Challenges

A lack of availability of information about business activities – especially if demand management is not included in the overall set of requirements and has to be collected separately.

Customers have a limited tolerance for how many people gather information about their service requirements.

Customers might find it difficult to break down individual activities that make sense to the service provider.

Business relationship management should be able to assist in doing this translation.

Lack of formal service portfolio management process or service portfolio. This will make it difficult to understand the business requirements, relative value, and priority of services, and will mean that demand management information might be recorded on an ad hoc basis, often with little coordination and duplicate effort.

In the next section, we will discuss the risks of Demand management.

Demand Management Risks

Demand management risks include:

Lack of, or inaccurate, configuration management information, makes it difficult to estimate the impact of changing demand on the service provider’s infrastructure and applications.

Service level management is not able to obtain commitments to a minimum or maximum utilization levels, and it is, therefore, difficult to commit to levels of service.

This situation often results in higher than necessary levels of investment to enable the service provider to keep ahead of demand – even when not essential.

Conclusion

In this lesson, we learned all about the Demand Management process including its policies, process flow, activities, methods, and techniques. With this, we would move forward to our next lesson, which explores the topic Supplier Management.